Special Report

The future of Ford’s AutoAlliance joint venture plant likely will be at the front and center of labor talks with the United Auto Workers union that kick off today with a handshake ceremony at the giant Rouge manufacturing complex in Dearborn, MI.

The survival of the Flat Rock, MI, facility was cast in doubt last month after partner Mazda revealed plans to pull out of the operation.

The plant currently builds the Ford Mustang pony car and Mazda6 midsize sedan. The Mazda6 will end its run at AutoAlliance when the current-generation version is phased out, likely for the ’14 model year.

Flat Rock’s uncertain fate serves as both the “carrot and stick” for Ford in this negotiation round, says Gary Chaison, industrial relations professor at Clark University in Worcester, MA.

“The UAW will bring this up first and the company will say, ‘Let’s see how talks progress,’” he tells Ward’s. The plant situation will be “an enticement” to get UAW leaders to agree to maintain the contentious 2-tier wage structure.

Ford could promise new product at the plant, saving the jobs of 1,616 workers there, Chaison says. “Flat Rock will be the first and the last thing they talk about.”

The Michigan facility is woefully underutilized, running at about 41% of capacity last year, according to Ward’s data. Without new product to replace the Mazda6, that is likely to drop further, creating a situation that is “not sustainable,” says a source familiar with the upcoming negotiations.

Calls to UAW Local 3000, which represents the AutoAlliance plant, were not returned.

The 2-tier wage structure is sure to be another contentious issue. Accepted by the union in 2009 in an effort to align the Detroit Three’s labor costs with those of the foreign transplants, the wage system allows the auto makers to pay entry-level workers significantly less than more senior employees.

Ford’s workforce can include up to 20% entry-level employees, but currently there are fewer than 100 at the auto maker.

Tier 2 workers receive about $677 for a 40-hour week. Senior skilled employees make about $1,313 per week, according to Ford’s National Negotiations Media Fact Book.

The 2-tier wage system was criticized widely at last spring’s UAW Collective Bargaining Convention in Detroit. Pro-union websites call the setup “rotten” and “divisive,” while the auto makers insist it is essential to compete with the likes of Toyota and Honda.

“If you get a competitive labor rate that the entry-level rate gives us, it’s a shot at bringing some of these jobs in (that) would normally be outside,” he says. “As long as we can come up with a good business case and people are reasonable, I think we can come up with some good solutions.”

Chaison says Ford could promise to bring new or currently outsourced product in-house in return for maintaining the 2-tier structure.

Ford also likely will maintain that the 2-tier structure, which amounts to about $35,500 annually, is competitive. The auto maker attracted more than 17,000 applicants when it announced entry-level wage openings at its Louisville, KY, assembly plant.

Ford spokeswoman Marcey Evans says entry-level workers have the opportunity, based on seniority, to move to senior-level status when veteran workers leave the company for “whatever reason.”

But Ford has to be at the 20% entry-level worker plateau before that can happen, she says, noting there is still wage progression with entry-level workers. All new Ford hourly employees will begin at entry-level wages, she says.

In addition to maintaining the 2-tier structure, Ford is expected to push for additional cost concessions.

The average transplant worker makes $50 an hour, including benefits. Ford employees take in about $58 per hour. The auto maker would like to eliminate that $8 gap, which it could do by demanding further concessions or hiring more entry-level workers.

“This is where bargaining gets tough,” Chaison says. “There has to be some rationale for that, and it’s going to be difficult.

“Ford will have to come up with a list of plants that will be continued and expanded,” he adds, “and this is where costs come in.”

Convincing UAW members to further sacrifice to close the wage gap will be especially difficult because of backlash surrounding Ford CEO Alan Mulally’s $26.5 million compensation package.

UAW President Bob King has called Mulally’s pay “morally wrong,” especially after his members were forced to make concessions, and has said the issue will be addressed in the negotiations.

Ford may look to offset any additional costs it takes on with increases in worker co-pays for healthcare.

Hourly employees currently cover about 5% of their healthcare-plan costs. In comparison, salaried workers contribute 30% and retirees, 20%.

The auto maker would like to raise co-pays to as high as 10%, which may drive down the number of employees abusing the healthcare plan due to its negligible cost.

Ford also would like to work with the UAW to launch health-promotion and disease-prevention programs to keep costs in check. Chronic conditions such as diabetes, high blood pressure and obesity are widespread among UAW workers.

“Just by tweaking benefits, they can reform them in such a way to make sure workers don’t abuse them, and (Ford) would save huge amounts of money,” Chaison says.

Uncertain is whether the UAW would adopt its traditional pattern-bargaining approach to these negotiations. If it does, Ford widely is considered to be the likely target, as the auto maker is viewed as the best-positioned financially after posting nine consecutive quarterly profits.

But Chaison says pattern bargaining is “unrealistic because the three companies are facing different conditions. In general (the contracts) will be similar, but the process of pattern bargaining is not viable yet.”

Either way the contracts are likely to be similar.

“I don’t think (the UAW) wants to be placed in position of favoring one or another,” the source says. “Whatever company is at a disadvantage could have adverse consequences.”

Ultimately, Chaison says the negotiations should be “quick and painless,” noting many people are watching.

“If (negotiations) turn out well it’s going to be a great boon for the American labor movement,” he says. “If poorly, the word ‘greed’ will be associated with collective bargaining for a long, long time.”